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Paul Ryan, Fantasyland and the price of Chinese Tea

Perhaps it’s because I grew up in a fairly privileged upper-middle class world. I’m a third generation engineer whose routine involves contact with others of my social and educational background. For some reason, many of my friends have more conservative tendencies than do I. In many ways, I too remain conservative, especially on fiscal matters and sometimes even on social issues. But I’m definitely not an over-the-top, dogmatic, blind faith type of person. I like to look at things from different angles and think my way through them.

Having plenty of contact with the right wingers provides me with an unending source of entertainment and humor. Unlike trying to have an intelligent conversation with the likes of the Tea Party Patriots, many of my friends enjoy the sparring. They’ll actually “engage” in discussion and almost without exception, our conversations are spirited and fun. One of my more conservative friends recently sent me an email on the subject of Representative Paul Ryan’s budget proposal. Like many populist conservatives, Ryan’s siren song has its appeal – at least until you look under the covers. When my friend sent his missive, I responded to some of his “points”. For thought, I include his email (black) and my responses (blue) below.

Well, my friend . . . you knew my silence was merely transitory. I’ve been extremely busy, but did not intend to let you “off the hook” on this one. My goal now is brevity. Given the depth of the topic, that may be an unattainable goal, but I’ll give it a spin.

Often your brief comments make me pause to ask if you are simply pulling my chain or if you truly believe them. I’ll answer in this case as if it is the latter.

As a general rule, I’m doing both. You undoubtedly know I enjoy administering my own version of “shock therapy” and frequently do so by passing out small doses of truth to the unsuspecting. You’d really be shocked to know the ones I’m holding back.

As you know I have the greatest respect for you, further strengthened with your and Liz’s efforts for the Man on the Bench to find his identity and family. I took from the story the failure of government with its legislation designed to help people such as the “Mayor” but wound up with unforeseen consequences sentencing one man to obscurity and minimal assistance for years. You and Liz, private citizens, with little or minimal government assistance accomplished the task no one else was either willing or able to undertake.

As the author of the book, I’ll suggest there are many messages buried in its pages. However, if I were to pick one it would be that in every human heart there is an element of goodness. It is easy to overlook and easier yet to forget. The Mayor served as the vehicle to allow people to open up and reveal that goodness even for a fleeting instant in time.

Your point of tax cuts for the wealthy is well taken. Some corporate executives, professional athletes and entertainers are paid extravagant sums that seem, at least to me, beyond the pale of the value they deliver. It’s tempting to propose that the rich should pay more but the highest 1% of wage earners now pay 40% of the taxes and the highest 10% pay 60% of our national taxes. That likely leaves you and I to make up the other 40% since over 50%, increasing annually, have no skin in the game and contribute not a dime in income taxes. Since I’m no longer making the millions that seem to leave you with this awesome burden.

“There are three kinds of untruths, lies, damned lies and statistics”. Benjamin Disraeli. I’m not sure of the source and validity of your numbers, but I believe no one disputes the fact that the concentration of wealth in this country is greater than at any time in the last century. The concentration of wealth accelerated dramatically in the last ten years. This raises many questions, however, I promised brevity. I’ll stop here with “Look at the consequences of such concentrations. History is replete with examples.”

While the temptation of taxing the upper 10% with heavier tax burdens, these further “contributions” to government produce absolutely nothing tangible in goods or services.

I realize there are certain buzz words and phrases that have been sugar-coated by the media and fed to Americans with such intensity and frequency as to take them completely out of the realm of rational thought and question. This is one of those phrases – “. . . the government produces absolutely nothing tangible in goods or services.” Unfortunately, it is patently false. Your life is easier and more productive because you drive on roads produced by the government. You fly on planes that take off from airports produced by governments. It is interesting that without the advances produced as a consequence of the government’s space program, those planes wouldn’t exist in their current form. You wouldn’t be reading this on a computer were it not for the government’s investment in the space program. I could go on for pages, but back to brevity.

Those increased taxes that would otherwise represent the investments of private industry will thus be diminished for the capital of ideas and innovation that create industry and with it private sector jobs and taxes from those employees. History exhibits that further taxation on the other hand, will be used to simply expand government and erode job growth in the private sector.

Which part of “history” are you citing here? The Eisenhower years? Wasn’t that a period where the highest incremental tax rate was in excess of 90%, yet the same period when America experienced one of its greatest periods of growth and unquestionably its largest expansion of the great middle class which also happens to be the prime driver of our economy?

At what point do we say to government, even for the wealthiest 1%, ‘You’ve taken enough.’ When an individual steals from you we call it robbery, but when the government takes from you we fail to call it what it is – legalized thievery.

I remember the first year I had to pay over $1,000,000 in taxes. I bitched without end, yet the truth was I earned enough to warrant such a tax bill by taking advantage of an infrastructure that wouldn’t have existed without the government and its consequent taxation.

When the federal income tax came into existence in 1913, it was said that it would never affect anyone except the highest 1% wage earners and never have to be increased.

As you’re probably aware I’ve done people’s income tax returns over the past two years and I’m shocked at what I see. A random sampling of those returns tell me that over 50% not only pay no federal income tax (their withheld taxes are totally refunded to them) but they are also the recipients of an average of almost $3,300 of additional money.

I’ll confess I’m a little surprised at this statistic. My only question is “Is this random sampling representative of the nation as a whole or only of those who utilize your company for tax preparation?

While I am sympathetic to the low incomes that too many of our citizens now earn, I am appalled that we continue to make these same people reliant on the government for redistributed wealth and hence to ultimately make them wards of the state. Because of the complexity of our income tax laws, these same people must pay an average of almost $250 to get their income taxes refunded and to obtain that redistribution. It would seem to me that if government were concerned with the plight of low wage earners it would simplify tax laws to allow them to retain that $250. In the process of attempting to “level the playing field” we eliminate the incentive for people to do better and improve their lot in life. Thus, the driving force of capitalism – work hard to better your own life and the life of your offspring – has been lost to a system that encourages people to tap into the numerous federal, state and local social programs to enhance their incomes.

Brevity – Brevity – Brevity! I could go on for days on this topic, but I’ll try and summarize. No question about it, the system is flawed if not irreparably broken. If it’s fixable, why aren’t we fixing it? It seems the obvious conclusion is that this amounts to an indictment of our current system of democracy (another sacred word we’re not allowed to question or contemplate.) You don’t fix a broken down car by destroying it. You don’t fix a relationship by abandoning it. You don’t cure the ailment by killing the patient. You don’t fix a government by eliminating it. The solution is not the great libertarian free-for-all espoused by many of the Tea Party ilk. If you’d like to see the results of society where government has truly been minimized, schedule a vacation in Somalia.

If a family finds itself spending more than it earns, it must either cut its spending or borrow the money to maintain its spending level. Obviously, in choosing the latter, it will eventually find itself in bankruptcy. That seems to me to be the course our government has chosen to take. While no one argues that such a strategy is sustainable, Washington continues to act if it is. The same principles by which a family unit approaches its finances should be appropriate for the government. We’ve tried the borrow and spend strategy with limited success – many would argue no success – and isn’t it now time to adopt the other strategy of cutting spending, of reducing government, of allowing money to flow into the private sector for job creation?

Up until the last line of this paragraph, we were marching in lock-step. Spending must be cut AND income must be increased. But the extension of the reasoning to “allowing money to flow into the private sector for job creation” is fatally flawed. Where is government spending going? Into the private sector! Given the precepts of Keynesian economics (which most “conservatives” neither understand nor agree with), the absolute worst thing the government could do right now is drastically reduce spending. It would cause an immediate and massive increase in unemployment. You’re right when you suggest it is unsustainable. However, there is a very fine line to walk in restoring health. Reduce the dosage of the medicine (monetary velocity) and you’ll kill the patient. Therein lays the heart of the challenge. It doesn’t take a great deal of insight to see the problem cannot be allowed to continue unabated, but to safely nurse the state back to health calls for a much more nuanced approach. Amputating its limbs to save it isn’t the wisest thing to prescribe. You may just discover the limb you cut off is the American middle class, i.e., you and me.

I’m attaching William Graham Sumner’s essay that, I think, expresses the way Washington has attempted to govern, legislate and tax over the last one-hundred years. It was the centerpiece of the book The Forgotten Man by historian Amity Shlaes. The book chronicles the FDR Administration and there are increasing numbers of historians who believe FDR’s policies prolonged the Depression which might have continued but for the onset of WWII. American industry was unleashed to produce, albeit for war production. At the end of hostilities Europe’s and Japan’s industrial capabilities had been almost totally destroyed and the American economy thrived due to its ability to quickly convert its war production to peacetime production to meet the world demand.

I’ve always enjoyed 100 year old essays. They frequently offer insights into the past and maybe even some ideas to contemplate in the present. In this case, I suspect what Sumner forgot was that the “forgotten man” was the guy that put A and B in place in the first place (assuming a democratic system). I found Sumner’s essay interesting, but a bit too simplistic to really have any great application in today’s world.

Paul Ryan’s 2012 budget will be heatedly debated over the weeks ahead, and there will invariably be a great number of changes as the voices of left and right politic for the approval of their respective bases. I’m pleased and encouraged that some members of our Congress are finally finding the courage and are taking the initiative to attempt to solve the debt problems this nation now has.

As you can imagine, I could go on at great length. I’m really biting my lip on the subject of “wealth redistribution”. I’m also entertained by the concept of reducing government in light of the apparent fact that government and business seem to be different shadows from the same entity. There’s a strong case for government being little more than an extension of the private sector. After all, the Supreme Court says a corporation is in fact a person with certain Constitutional rights and as you know, our government is “for the people, by [buy] the people and of the people.” However, out of respect and sympathy for my friend, I’ll stop it here.

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